Ac t i o n | 10 Mar 2026 05:39:48 ET │ 17 pages Ningbo Deye Technology (605117.SS) Earnings and TP Lifts Expecting More Residential ESS Demand CITI'S TAKE We reiterate Buy on Deye for (i) near doubling yoy of energy storage system (ESS) inverter volume demand growth in 1Q26E, benefiting from fast- growing global residential ESS demand amid power shortages, especially in emerging markets; (ii) positive catalyst from incremental ESS demand from Europe stimulated by energy price hikes amid the Middle East conf ...

Financial Data and Key Metrics Changes - First quarter revenue increased by 23.6% to $42.1 million, up from $34.1 million in the same period last year [5][16] - Gross profit rose from $7.1 million to $10 million, a 41% increase, with gross margin expanding by 290 basis points to 23.6% [8][17] - Adjusted EBITDA increased by 56.2% to $5.7 million, translating to an adjusted EBITDA margin of 13.6%, up from 10.8% [9][18] - Operating profit increased by 89% to $4.2 million, with operating margin at 9.9% compared to 6.5% in the previous period [17] Business Line Data and Key Metrics Changes - Heat exchange product line revenue increased by 30% to $18.4 million [20] - APU segment revenue rose by 34% to $12.3 million [20] - Trading and leasing revenue decreased by 27% to $2.1 million due to postponed deals [20][21] - Lending gear revenue increased by 127% to $3.3 million [20] Market Data and Key Metrics Changes - Backlog and long-term agreements rose to $439 million, providing strong visibility for future growth [9][23] - The company secured backlog and orders worth $52 million in the quarter [23] Company Strategy and Development Direction - The company is focused on growing its MRO and OEM business as well as its trading division, providing agility and operational flexibility [13] - The expansion of APU capabilities is expected to grow the addressable market significantly [11][24] - The company is strategically increasing inventory levels to meet demand despite ongoing supply chain issues [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term growth despite short-term volatility due to macroeconomic factors [10][14] - The aviation sector is facing macroeconomic headwinds, but the company believes its backlog and long-term agreements will support growth [10] - Management highlighted the importance of operational efficiencies in improving margins, aiming for a gross margin of at least 25% and an EBITDA margin of 15% in the future [36] Other Important Information - The company is well-positioned to double its capacity from a technology and equipment standpoint, although supply chain remains a bottleneck [43] - Tax expenses are currently non-cash items, with expectations to become cash expenses by Q4 2025 [19][45] Q&A Session Summary Question: Can you explore the incremental backlog this quarter? - Management indicated that the increase was driven by a combination of existing and new customers across various business lines [34] Question: How much of the margin improvement is due to pricing versus operational actions? - Management clarified that the margin improvement is primarily due to operational efficiencies rather than pricing changes [36] Question: What is the current state of the supply chain? - Management noted that the supply chain situation is evolving, with a positive overall trend but still facing volatility [38] Question: What are the opportunities for growth within the government and defense market? - Management acknowledged the presence of opportunities but indicated that immediate growth is not expected due to the nature of government procurement processes [46] Question: What is the outlook for APU revenue opportunities with major logistics customers? - Management confirmed strong relationships with existing customers and expressed confidence in securing more business as contracts come up for renewal [50] Question: When do you expect the redomicile process to be completed? - Management stated that operationally, the company functions as a US entity, despite the registration status [60]